Are You Targeting the Right Market Segment?
by Howard Shore, Date: Nov 30, 2015
The predictability and consistency of your revenue growth rate are important measures of the health of your business. A key to driving your growth is targeting the right market segment. Positioning your company in a growth industry, market segment, or sector is crucial to the continued success of your company. In order to have future growth, regardless of how you are doing this quarter or year, there must be a market out in front of you that your products/services are focused on and that is growing.
Why Should You Care Which Market Segment You Choose?
When you are in a growth market running the business is much easier in many ways. Here are a few reasons for you to want to be in a growth market:
- Employees – It is easier to attract, keep and grow the right employees.
- Customer Acquisition – It is easier to be a winner in a growing market than in one that is declining or stagnant. All boats rise with the tide.
- Capital – It is easier to attract and lower your cost of capital.
- Margins – There is a better chance of earning larger profit margins.
- Operations – Predictable revenue allows you generate cash and to plan and invest properly in the support structure of your business to properly serve your.
- Shareholders – Higher returns on investment for shareholders.
- Valuation – Buyers pay more for businesses that are in growth markets.
How Do You Find Your Market Segment?
By focusing time on a specific customer segment you can become the dominant player in that segment. A segment is a group of customers with common characteristics that influence how they make decisions. In every industry you can group potential customers into many possible segments.
Your leadership team must examine the marketplace and cluster people and organizations into groups, separating them based on common needs, behaviors, or other attributes so that they can be better served. Once you have isolated different groupings, you can look for ways they may be underserved today in terms of products and/or services. You do this by asking questions such as:
- Do they deserve a distinct offering? How well do the current offerings meet their distinct desires and needs?
- Are they reached through different channels? How well do the current channels work for this grouping?
- Does this unique set of people or organizations require different types of relationships?
- How does profitability differ, and could it differ for each grouping? What would need to change to change the game?
- How much would each grouping be willing to pay for different aspects of the offer?
How Do You Know You’re In A Growth Market?
Failure to identify segments destroys time allocation in your business. I find that this is more obvious when your company is small and time constraints are more serious. In most cases, we consider whether or not a prospect can afford to do business with us, rather than the likelihood of their doing business with us.
However, you know you are in growth market when the following signals are apparent:
- You can consistently grow at least 20% per year. More would be preferable.
- Acquiring new customers seems to be easy, and your current quarter compared to the same quarter in the previous year is either the same or growing. Any quarter that shows a dip is a warning sign that an adjustment may be needed.
- Profit margins appear to be holding steady with volume increase. There are obvious exceptions to this rule as you hit different steps in expansion.
- You are finding more and more competition in your space. This is why you have to move swiftly and grow quickly when you find a hot market.
- You can find news media, analysts, and industry experts talking about the trends you are taking advantage of. Follow them for signs in trend shifts.
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